Danielle DiMartino Booth, CEO and chief strategist for QI Research, stated that the Federal Reserve's independence is under attack. She commented on a Department of Justice investigation into Fed Chair Jay Powell, calling it an unprecedented attack. Powell pushed back against the investigation last night, she noted. Markets initially moved lower but have since reversed, trading slightly higher.
Booth was asked about a call from President Trump to cap credit card rates at 10% for one year. She said bank lobbies are strong and Congress has done very little recently. If approved, she fears it would abruptly cut off credit to those who need it most, calling such an outcome cruel. She does not believe Congress will vote for price fixing.
Regarding bank stock weakness, Booth said her firm is not constructive on financials. She is monitoring credit card charge-offs and bad loans. Banks may feel compelled to offer better optics on lending rates due to societal pressure, which could reduce their ability to lend.
On market outlook, Booth noted a pair trade favoring defensive stocks like utilities, while being unfavorable on financials. She said the market can tread water at high levels due to passive investing flows from millions of Americans. However, she is watching corporate headcount reductions and the retirement of baby boomers, which could challenge these flows by 2029.
Booth expressed significant concern about the labor market. She cited continued layoff announcements, bankruptcies at 15-year highs, and a rising unemployment rate. She expects the rate to reach 5% by the time June data is released. She stated we are at recessionary levels of long-term unemployment and called it a labor recession. Recent payroll data revisions are at levels not seen since the Great Financial Crisis, she said.
Despite this economic outlook, the stock market remains near record highs. Booth attributed this disconnect to the structure of passive investing, where the top 10% of Americans, who own most stocks and account for over 50% of consumption, continue to spend. For the other 90%, she said, it's a different story, citing CEO departures in consumer staples.
For investors, Booth advised hedging portfolios with dividend-paying, cash-producing investments, anticipating continued interest rate declines. She said volatility will be an everyday mainstay. A spillover into lower stock markets would likely occur when companies start missing revenue estimates, particularly in consumer discretionary sectors, she concluded.